The Truth about the Manufacturing Sector’s ‘Sickness’

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When I spend $100 at the grocery, my capital account (money) goes down by $100, but my goods account (groceries) increases by $100. My grocer’s goods account decreases by $100, while his capital account increases by $100. There’s a trade balance, whether my grocer is down the street, in another state or in another country. Or is it? Let’s explore whether buying more from a person than he buys from you is a problem, and let me give a personal example. I buy more from my grocer than he buys from me. In turn, he buys more from his wholesaler than the wholesaler buys from him. But sticking to my grocer and me, let’s see whether there’s a problem — what some people might call a trade deficit.

Say Japan’s Sony Corp. sells me a $1,000 television. My capital account goes down by $1,000, but my goods account rises by $1,000. Suppose Sony doesn’t buy any wheat, corn, cotton or cars from Americans. People are tempted to say that there’s a trade deficit. Not true. Instead of using that $1,000 to buy goods from us, Sony might purchase stocks and U.S. Treasury bonds from us — in other words, invest in America. When Sony sells me a television, the corporation’s goods account (called “current account” in international trade) goes down by $1,000, but its capital account (stocks and bonds) rises by $1,000. Lo and behold, again a balance of trade.

By the way, it would be great if foreigners didn’t buy anything from us and just gave us cars, computers, televisions, clothing and other goods in exchange for slips of paper with pictures of past presidents such as George Washington, Andrew Jackson and Ulysses Grant. We could live the life of Riley. The world would bestow all manner of goods and services upon us, and all we’d have to do is have a few Americans employed printing dollars that foreigners would hold precious and keep.

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  • Alex Kovnat

    > When Americans buy more goods from Canadians,
    > Chinese and Mexicans than they buy from us, it’s
    > a problem.

    What do you intend to do about this "problem"? Pass local content laws? Increase tarriffs like in 1930 when we had the Smoot-Hawley tariff?

    • 2Anglico

      Dr. Williams has answered all of your questions, many times. Why don't you use some initiative and find out for yourself what he has to say? I will even give you a little help,

      • RioBravo

        Alex was responding to and raising questions related to theis article. He was not reviewign the life work of the author. Get a clue, 2.

    • kongMing

      >Not hitting page 2


  • Amused

    I may be wrong but I think the author is hinting at a Trade Balance ??? At the end of the day , Manufacturing in the US is down NOT because of the things cited by the author , for Modernization has been going on for 60 years and better , that will not change .The fact that we can never compete with Chinese or Mexican manufacturinb as far as cost per unit is simply because in the US we do not pay slave labor wages and the standards for living are higher here than there . The answer lies in US manufactured parts and products that facilitate the changes in technology . Again we relegate THAT to China and Mexico . Switchboard operators will never come back , so lets manufacture electronic switches here .Other than that , fair trade , balanced trade with Chin a and mexico , even tariffs are the answer .

    • ebonystone

      The wage differential between the U.S. and 3rd World countries is only one reason, and not the most important one, for companies leaving the U.S. More important is the endless harassment, and its concomitant expense, by gummint agencies like EPA, OSHA, and EEOC, and their state and local versions. Companies have to spend billions of dollars/yr dealing with mindless regulations. That's if they stay in the U.S. But not if they move to China, Indonesia, Nicaragua, etc.

  • Questions

    Williams is an antidote to the hysteria peddled by such "conservatives" as Paul Craig Roberts, who sees nothing but decline in the manufacturing sector and "Zionism" lurking behind this decline.

  • Guest

    Did anyone besides me notice the word "might" when referring to Japan investing in America?

    All this free trade sounds great but it isn't accurate. Why? Because other countries do not practice FREE trade. They do not have governmental restriction like we do. They are a host of other problems.

    Perfect example of an over simplification of a ver y serious problem.

  • RioBravo

    There seems to be a lack of numbers for a compaison in the article. The author talks about the increase in economic output since last year. Wow, it has increased during a weak economic recovery. That usually happens in a recovery. Then there is a citation of the increase in productivity in manufacturing since 1987 but no refernece to manufacturing output during that time frame. What about the change in per capita manufacturing output since 1987? Does that support the authors case? WHo knows. This article seems to be pointless.

  • sedoanman

    "Just get rid of those John Deere harvesting machines that do in a day what used to take a thousand men a week, outlaw the robots and automation that eliminated many manufacturing jobs, and bring back manually operated PBX telephone switchboards."

    It would be easy: just eliminate freedom.

  • ebonystone

    Nice article, Prof. Williams! I particularly like your reference to the number of phone operators.
    I remember reading 10 or 12 years ago, that if the U.S. was still using 1940-level telecommunications technology to handle the 1999 level of phone traffic, then the enitre adult female population would be working for AT&T (or the other phone companies) as phone operators. Instead, the phone companies employ far fewer people than they did in 1940.

  • faustus

    those numbers include factory output of foreign factories owned by american companies as well and in 2012 the numbers will include numbers from "factorieless" companies such as apple as well.

  • faustus

    idiots like williams know this but keep putting this bs out….

  • cynthia curran

    Actually, there are alot of customer service call centers that replaced the pbx operator, so the article isn't totally accurate..